ASIC flexes DDO muscles, places stop order on another firm

ASIC has placed an interim stop order on offers from Finnia Income in response to deficiencies in the issuer’s target market determination (TMD), preventing the firm from issuing interests in giving a prospectus for, or providing financial advice to retail clients.

In a statement on Wednesday, ASIC said it placed the interim stop order to protect retail investors from potentially investing in offers that may not be suitable for their financial objectives, situation or needs.

To date, 13 interim stop orders have been issued in relation to non-compliant TMDs, and seven interim stop orders remain in place. Six have been lifted following actions taken by the entities to address ASIC’s concerns.

Finnia is an unlisted public company seeking to raise $20 million under a prospectus through the issue of redeemable preference shares in the company for the purpose of lending to real estate development projects. Potential investors must contribute a minimum of $25,000 for a term of 72 months, while the targeted interest rate is 8.15 per cent paid quarterly.

According to ASIC, at the time of lodgement of the prospectus, Finnia had not prepared a TMD for the offer. In fact, it only produced a TMD after the corporate regulator communicated with the company.

Amongst other things, ASIC was concerned that Finnia’s TMD did not adequately describe the objectives, financial situation and needs of consumers likely to be in the target market in an objective manner. Instead, it primarily focused on the features of the offer and consumers’ understanding of the offer.

ASIC also found that the TMD for the prospectus did not meet appropriateness requirements under the design and distribution obligations (DDO) because the distribution conditions were unlikely to result in the product being distributed to consumers in a suitable target market.

“Finnia’s distribution conditions were limited to identifying investors who had already registered with the issuer and were willing to meet the minimum investment of $25,000. There were no additional processes to identify investors as being within the target market,” the corporate regulator said.

ASIC now expects Finnia to consider the concerns raised about the TMD and to take steps to ensure compliance.

The corporate regulator also reminded other financial product issuers that under the DDO, they must define target markets for their products appropriately, having regard to the risks and features of their products, and the consumers they are intended for.

“Issuers also need to consider how their product will reach the target market, and have appropriate distribution conditions in place to ensure the product is directed towards its target market”.